Published Wed, 15 Apr 2020 13:04:29 -0400 on Seeking Alpha
As prices fall, many dividend yields rise and look more attractive.
However, a dividend is only as reliable as the firm’s cash flows.
These firms are most at risk of cutting dividends in the future, especially as economic conditions deteriorate and resources are stretched thinner.
As prices fall, many dividend yields rise and look more attractive. However, a dividend is only as reliable as the firm’s cash flows. Given that cash flows are at higher risk these days, firms who struggled to pay dividends before the crisis may be forced to cut their dividends while GDP suffers. Investors need to do diligence on fundamentals to assess the reliability of dividend yields.
Below, we identify firms with seemingly attractive dividend yields, but without the cash flows to sustain them. These firms are most at risk of cutting dividends in the future, especially as economic conditions deteriorate and resources are stretched thinner. Risky dividend stocks are in the Danger Zone this week.
Not All Dividend Yields Are Created Equal
High-yielding dividend stocks hold great appeal for some investors. But, that appeal disappears quickly if the firm doesn’t generate the free cash flow needed to pay its promised dividend.
Here are the criteria we used to identify the riskiest dividend yields:
Dividend yield greater than 4% Negative free cash flow yield over the trailing twelve month period Cumulative five-year FCF less than cumulative five-year dividend payments Net debt greater than 25% of market cap A Neutral-or-worse Risk/Reward rating We then ranked these firms based on the deficit between FCF and dividend payments over the last five years. We categorize Utilities firms separately due to the unique nature of the Utilities industry.
Figure 1 includes all firms with a FCF minus dividends deficit greater than $2 billion.
Figure 1: At Risk Dividend Yields – FCF vs. Dividend Deficit Greater Than $2 Billion
*Excludes Real Estate Investment... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
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